Understanding Alberta's Auto Insurance Reforms

As Alberta brokers, we are already fielding numerous questions from clients about the province's upcoming auto insurance reforms and how they will impact their rates. The government's decision to raise the auto insurance rate from the current 3.7% to 7.5% in 2025 has been a major source of confusion.

Breaking Down the Rate Increase

The actual auto insurance rate cap will be 5%, but Alberta is allowing an additional 2.5% rate rider on top of that. This means that while clients are hearing about a 7.5% increase, it's important to clarify that this is not entirely accurate. The 7.5% rate cap is an aggregate increase, with the 5% cap being the base and the additional 2.5% rate rider accounting for natural disaster costs related to events like the Jasper wildfire and Calgary hailstorm.

Starting in January 2025, insurers filing for rate increases with the Automobile Insurance Rate Board will be capped at 5%. The additional 2.5% rate rider is a temporary surcharge to address specific costs outside of the standard rate-setting process. This summer alone, insurers paid more than $3.68 billion in claims due to these natural disasters, with auto damage claims from the Calgary hailstorm costing $900 million.

Looking Ahead to 2026

The government has not confirmed if the 2.5% rate rider will be in effect in 2026, as it is too early to predict how natural catastrophes might impact premiums in the upcoming year. Therefore, the 2.5% rate rider is not guaranteed for 2026.

Transition to a Care-First Model

In addition to the rate changes, the United Conservative Party has announced a long-term reform solution: a hybrid no-fault insurance model set to come into effect in 2027. This model prevents collision victims from suing drivers and their insurers, with some exceptions. For example, accident victims can sue an at-fault driver for damages if the responsible party is convicted of a Criminal Code offence or certain Traffic Safety Act violations, such as impaired or distracted driving. Victims can also sue for out-of-pocket expenses that exceed benefits offered under the model.

Brokers are confident that the move to number claims payouts and reduce premiums by pulling costs out of the system.

To better understand the impact of this transition, here are some comparisons between the current court system and the Care-First system for injury treatment, compensation, and timelines:

For common injuries, under the current court system, individuals are entitled to up to 21 pre-approved physiotherapy or chiropractic visits. Compensation includes a maximum of $6,061 for pain and suffering damages plus out-of-pocket expenses. Typically, claims are resolved within months. In contrast, the Care-First system provides treatment for as long as there is a measurable benefit, but does not offer pain and suffering damages. However, out-of-pocket expenses can still be claimed, and claims are typically resolved within months as well.

For serious injuries, the current court system allows for up to $50,000 in treatment over two years. If more treatment is required, the injured party must sue the at-fault driver. Compensation includes pain and suffering damages, loss of earning capacity, and out-of-pocket expenses, but claims can take years to resolve. The Care-First system, on the other hand, has no maximum or time limit for treatment that provides a measurable benefit. Compensation may include a permanent impairment lump sum ranging from $1,000 to $187,000, income replacement benefits, and out-of-pocket expenses. Claims are resolved when maximum medical recovery is achieved.

Challenges and Opportunities for Brokers

Overall, brokers are hopeful that long-term reform will allow insurers to remain competitive in Alberta. Several companies have already withdrawn capacity in the market due to profitability concerns related to the prolonged rate cap. Roughly one-third of 67 automobile insurers in Alberta have lost money under the ongoing rate cap, which was first initiated in 2023 and renewed the following year.

The Government of Alberta website has additional information: Automobile insurance reform | Alberta.ca